Gas tariff rise Deferment

The Economic Coordination Committee (ECC) of the federal cabinet deferred the proposed gas price rise amidst Sindh’s opposition and the PML-N’s criticism. The deferment is until a fresh cross-subsidy mechanism is in place with the approval of Prime Minister Imran Khan. The ECC decided to allow import of 100,000 tonnes of urea to ensure price stability of agricultural products in the Rabi season. On the gas price issue, Chief Minister (CM) Sindh Syed Murad Ali Shah had called federal Finance Minister Asad Umar before the ECC meeting to convey the reservations of his government about the proposed gas price increase, arguing that a decision on gas price adjustment was outside the jurisdiction of the ECC and should be considered by the Council of Common Interests (CCI) under the Constitution. The provinces, it may be pointed out, are represented on the CCI but not on the ECC. CM Shah also pointed out that Sindh’s position on the issue was already on the record of the CCI since the tenure of the previous government. If, he continued, the federal government would continue on its proposed course, the provincial government would have no choice but to take legal recourse. The petroleum division officers in the ECC meeting were left red-faced when they could not offer any cogent explanation why the question of the CCI and provincial objections that were part of the record in the previous government were absent from the summary seeking the gas price increase. This episode may be considered the first encounter of the new PTI government with the bureaucracy that tries to be more loyal than the king but in the process falls into “Yes, Minister” type obfuscation. As to PML-N president Shahbaz Sharif’s boast of freezing gas prices for four years and accusing the PTI government of double standards (i.e., big promises of people’s welfare and instead gifting gas, electricity price rises so early in its tenure), the government appears to have decided to build public opinion against the PML-N’s narrative and highlight the latter’s weak economic policies. In its review of the economic situation, the ECC saw the necessity to raise gas and electricity prices because of the PML-N government’s performance. Be that as it may, the present government should keep in mind the validity of the argument put forward by the CM Sindh and advise the prime minister too regarding the constitutional position in relation to such decisions lying within the purview of the CCI. The gas companies are pressing for a price rise because of their growing losses, currently estimated at over Rs 156 billion on account of Unaccounted for Gas (UFG). UFG represents gas lost to theft, leakages and other technical factors. The proposed gas price increase will only partially offset gas companies’ losses. In addition, the cross-subsidy regime needs careful handling to ensure the poor are not further burdened instead of the more affluent. The ECC may have conveniently passed the buck to the prime minister, but precedent, particularly after the 18th Amendment, suggests the government will have to go the CCI route.

The import of fertilizer is of course a rational move, considering the shortfall of 300,000 tonnes. Three fertilizer plants have been lying idle for long because they could not be supplied gas feedstock, a raw material of urea production. To meet the difference between the shortfall of 300,000 tonnes and imports of 100,000 tonnes, two of the idle plants are to be brought back into production. The government hopes these steps will be sufficient to ensure the Rabi season crops receive adequate fertilizer, despite sniping from critics. It is a moot point why the three fertilizer plants could not be kept in production, thereby perhaps eliminating, or at least reducing, the need for imports when the external account is already under so much pressure. The present government now has to deal with this negligence and subsidise the supply of the imported fertilizer at domestic prices to ensure Rabi agricultural production meets its targets. While past governments have to shoulder their share of the blame for bringing things to such a pass, the present government must think through mid- and long-term plans to ensure the energy and agriculture sectors do not suffer such embarrassments again.

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(This news/article originally appeared in Business Recorder on September 14th, 2018)